The £3.9bn sale of its Costa Coffee franchise to Coca-Cola has netted Whitbread (WTB) a tidy sum, funds which can be returned to shareholders in time. Yet the sale also leaves the Premier Inn operator almost exclusively reliant on its hotels chain, which now represents the bulk of the business going forward.
Against this backcloth it is understandable that today's disappointing third quarter update, with a particularly weak contribution from Premier Inn, overshadows the commencement of a £500m share buyback scheme, and sees the shares decline 1.1% to £47.19.
NO ROOM AT THE INN FOR PROFIT GROWTH
In a nutshell, sales are down and, while operating profit for the February 2019 financial year is in line with expectations, the company is not expecting any profit growth in the February 2020 year.
Year-to-date like-for-like sales are down 0.7% while total sales (including new openings) are up 2.5% in the third quarter and 2.7% for the year as a whole in the UK.
Occupancy, average room rate and revenue per available room were all down in the third quarter for the UK business.
‘DISAPPOINTING’ FORWARD GUIDANCE
Shore Capital analyst Greg Johnson describes the guidance for 2020 as ‘disappointing’.
AJ Bell investment director Russ Mould adds: ‘On the one hand Premier Inn is a strong brand and there is certainly demand for slightly upmarket affordable accommodation. On the other, it operates in an industry that continues to expand despite there already being significant supply.
WEAKENING GERMANY MAY HOLD THE KEY
‘Whitbread is pinning its hopes on Germany being its next big growth region. However, the German economy has just had its worst year since 2013 according to preliminary government data. Various economic forecasts suggest weak growth in 2019, meaning Whitbread’s expansion plans face a series of headwinds.
‘As such, it does seem highly likely that many shareholders will want to check out once the Costa rewards are paid out.’
